UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,
D.C.  20549  
  Form 10-Q  ý  Quarterly report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934  For the quarterly period ended
January 31, 2002  OR o  Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934  Commission File Number:  
001-11807  
  UNIFY CORPORATION (Exact name of registrant as specified in its charter)  Delaware
  
  94-2710559(State or other jurisdiction of
  incorporation or organization)
  
  (I.R.S. Employer Identification
  Number)2101 Arena Blvd, Suite 100
  Sacramento, California 95834(Address of principal executive
  offices)(916) 928-6400(Registrants telephone number,
  including area code)
  Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YESýNOo  Indicate the number of shares outstanding of each of
the issuers classes of common stock, as of the latest practicable date.  20,258,163 shares
of Common Stock, $0.001 par value, as of February 28, 2002 
   UNIFY CORPORATION FORM 10-Q  INDEX  PART I.
  FINANCIAL INFORMATION
  PageItem 1.
  Financial Statements
  3Condensed Consolidated
  Balance Sheets as of January 31, 2002 and April 30, 2001
  3Condensed
  Consolidated Statements of Operations for the three and nine months ended
  January 31, 2002 and 2001
  4Condensed
  Consolidated Statements of Cash Flows for the nine months ended January 31,
  2002 and 2001
  5Notes
  to Condensed Consolidated Financial Statements
  6Item
  2.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  9Item 3.
  Disclosures About
  Market Risk
  15PART II.
  OTHER INFORMATIONItem 1.
  Legal Proceedings
  16Item 6.
  Exhibits and
  Reports on Form 8-K
  17SIGNATURE
  18  2 
   PART
I.         FINANCIAL INFORMATION Item
1.            Financial Statements  UNIFY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)  January
  31,
  
  April 30,2002
  
  2001Assets
  
  (unaudited)
  
  (1)Current assets:Cash and cash
  equivalents
  
  $
  2,792
  
  $
  2,984Restricted cash
  
  41
  
  118Investments
  
  
  
  100Accounts receivable,
  net
  
  3,418
  
  2,815Prepaid expenses
  and other current assets
  
  284
  
  600Total current
  assets
  
  6,535
  
  6,617Property and
  equipment, net
  
  454
  
  744Other
  investments
  
  750
  
  1,850Other assets
  
  100
  
  133Total assets
  
  $
  7,839
  
  $
  9,344Liabilities and Stockholders
  DeficitCurrent
  liabilities:Accounts payable
  
  $
  696
  
  $
  1,877Current portion
  of long-term debt
  
  240
  
  Other accrued
  liabilities
  
  1,994
  
  3,406Accrued
  compensation and related expenses
  
  786
  
  1,013Note payable to
  minority interest stockholders
  
  300
  
  528Deferred revenue
  
  3,728
  
  3,722Total current
  liabilities
  
  7,744
  
  10,546Long-term debt
  
  260
  
  Stockholders
  deficit:Common stock
  
  20
  
  18Additional
  paid-in capital
  
  59,058
  
  58,925Note receivable
  from stockholder
  
  (60
  )
  (60
  )Accumulated
  other comprehensive loss
  
  (525
  )
  (651
  )Accumulated
  deficit
  
  (58,658
  )
  (59,434
  )Total
  stockholders deficit
  
  (165
  )
  (1,202
  )Total
  liabilities and stockholders deficit
  
  $
  7,839
  
  $
  9,344  
 (1)  Derived from the audited consolidated
financial statements for the year ended April 30, 2001.  See accompanying
notes to condensed consolidated financial statements.  3 
   UNIFY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share
data) (Unaudited)  Three
  Months Ended
  
  Nine
  Months EndedJanuary
  31,
  
  January
  31,2002
  
  2001
  
  2002
  
  2001Revenues:Software
  licenses
  
  $
  1,972
  
  $
  1,611
  
  $
  5,062
  
  $
  4,948Services
  
  1,565
  
  2,118
  
  4,808
  
  5,193Total revenues
  
  3,537
  
  3,729
  
  9,870
  
  10,141Cost of
  revenues:Software
  licenses
  
  92
  
  160
  
  406
  
  476Services
  
  393
  
  669
  
  1,162
  
  2,556Total cost of
  revenues
  
  485
  
  829
  
  1,568
  
  3,032Gross profit
  
  3,052
  
  2,900
  
  8,302
  
  7,109Operating
  expenses:Product
  development
  
  918
  
  860
  
  3,027
  
  4,072Selling, general
  and administrative
  
  1,632
  
  2,266
  
  4,524
  
  8,664Write-down
  of other investments
  
  1,100
  
  3,650
  
  1,100
  
  3,650Special
  charges (recovery)
  
  (1,376
  )
  140
  
  (1,315
  )
  2,678Total operating
  expenses
  
  2,274
  
  6,916
  
  7,336
  
  19,064Income
  (loss) from operations
  
  778
  
  (4,016
  )
  966
  
  (11,955
  )Other expense,
  net
  
  (74
  )
  (18
  )
  (145
  )
  (276
  )Income (loss)
  before provision for income taxes
  
  704
  
  (4,034
  )
  821
  
  (12,231
  )Provision for
  income taxes
  
  8
  
  20
  
  45
  
  47Net income
  (loss)
  
  $
  696
  
  $
  (4,054
  )
  $
  776
  
  $
  (12,278
  )Net income
  (loss) per share:Basic
  
  $
  0.03
  
  $
  (0.21
  )
  $
  0.04
  
  $
  (0.65
  )Diluted
  
  $
  0.03
  
  $
  (0.21
  )
  $
  0.04
  
  $
  (0.65
  )Shares used in
  computing net income (loss) per share:Basic
  
  20,218
  
  19,020
  
  19,684
  
  18,946Diluted
  
  20,633
  
  19,020
  
  20,204
  
  18,946  See accompanying
notes to condensed consolidated financial statements.  4 
   UNIFY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (In thousands) (Unaudited)  Nine
  Months Ended January 31,2002
  
  2001Cash flows from
  operating activities:Net income
  (loss)
  
  $
  776
  
  $
  (12,278
  )Reconciliation
  of net income (loss) to net cash used in operating activities:Depreciation
  
  296
  
  627Loss on disposal
  of property
  
  16
  
  Gain on sale of
  investment
  
  (21
  )
  Write-down of
  other investments
  
  1,100
  
  3,650Changes in
  operating assets and liabilities:Accounts
  receivable, net
  
  (677
  )
  436Prepaid expenses
  and other current assets
  
  257
  
  352Accounts payable
  
  (1,175
  )
  277Accrued
  compensation and related expenses
  
  (207
  )
  (209
  )Other accrued
  liabilities
  
  (891
  )
  315Deferred revenue
  
  65
  
  (142
  )Net cash used in
  operating activities
  
  (461
  )
  (6,972
  )Cash flows from
  investing activities:Purchases of
  available-for-sale securities
  
  
  
  (100
  )Maturities/sales
  of available-for-sale securities
  
  121
  
  3,669Decrease in
  restricted cash
  
  77
  
  Purchases of
  property and equipment
  
  (24
  )
  (529
  )Increase in
  other assets
  
  
  
  (2,180
  )Other assets
  
  85
  
  (176
  )Net cash
  provided by investing activities
  
  259
  
  684Cash flows from
  financing activities:Proceeds from
  issuance of common stock, net
  
  135
  
  579Note payable to
  minority interest stockholders
  
  (204
  )
  305Net cash
  provided by (used in) financing activities
  
  (69
  )
  884Effect of
  exchange rate changes on cash
  
  79
  
  71Net decrease in
  cash and cash equivalents
  
  (192
  )
  (5,333
  )Cash and cash
  equivalents, beginning of period
  
  2,984
  
  7,407Cash and cash
  equivalents, end of period
  
  $
  2,792
  
  $
  2,074Supplemental
  noncash investing and financing activities:Conversion of
  other accrued liabilities to long-term debt
  
  $
  500
  
  $
  Supplemental
  cash flow information:Cash paid
  (received) net during the period for:Interest
  
  $
  17
  
  $
  5Income taxes
  
  $
  (98
  )
  $
  13  See accompanying
notes to condensed consolidated financial statements.  5 
   UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  1.     Basis of
Presentation  The condensed
consolidated financial statements have been prepared by Unify Corporation (the
Company) pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). While the interim financial information contained in this
filing is unaudited, such financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal
year. These financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, together with Managements
Discussion and Analysis of Financial Condition and Results of Operations, which
are included in the Companys Annual Report on Form 10-K for the fiscal year
ended April 30, 2001 as filed with the SEC.  Reclassifications  Certain items in the fiscal 2001 consolidated financial statements have
been reclassified to conform to the fiscal 2002 presentation. These
reclassifications had no effect on net loss or stockholders deficit.  2.     Results of
Operations and Managements Plan  The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying condensed
consolidated financial statements for the nine month period ended January  31, 2002, the Company recorded net income of
$776,000 and has an accumulated deficit of $58,658,000.  The Companys cash and cash equivalents
decreased for the nine month period ended January 31, 2002 by $192,000 and the
Companys working capital deficit was 
$1,209,000 as of January 31, 2002. 
For the year ended April 30, 2001, the Company incurred a net loss of
$12,331,000, had an accumulated deficit of $59,434,000 and negative working
capital of $3,929,000 as of April 30, 2001. These factors indicate that the
Company may potentially be unable to continue as a going concern.  The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.  The Companys continuation as a going
concern is dependent upon its ability to continue to generate sufficient cash
flows to meet its obligations on a timely basis, the ability to continue to
work with key vendors to accept payment terms for certain payables, to obtain
additional financing or refinancing as may be required, and ultimately to
return to profitability and significant positive cash flows.  Management restructured the Company and
significantly reduced operating expenses during fiscal 2001 and again, on a
much smaller scale during the first quarter of fiscal 2002.  Management plans to grow revenues, increase
the investment in marketing while aggressively controlling costs, and seek
additional financing if available upon terms that are acceptable to the
Company.  There is no assurance that
managements plans will be successful or if successful, that they will result
in the Company continuing as a going concern.  3.     Acquisitions and
Divestitures  In June 2000, the Company acquired privately-held Unify InterAmerica,
the Companys master distributor in Latin America.  The acquisition was in support of Unifys strategy to rapidly
expand into the growing Latin America e-commerce market.  After review of this strategy by the
Companys new management, the Company determined Latin America was not a
strategic market  6 
   and that this market would be best served by an independent master
distributor.  In September 2000, the
original stockholders agreed to repurchase Unify InterAmerica, which resulted
in the Company recording a loss of approximately $400,000 as reflected in other
expenses for the nine month period ended January 31, 2001.  4.     Other Investments  Other investments represents common stock in two closely held
technology companies. The Companys ownership interest in each company is less
than 10% (in thousands):  January 31,
  
  January 31,2002
  
  2001Arrango Software International, Inc.
  
  $
  500
  
  $
  500Evergreen Internet, Inc.
  
  250
  
  1,350$
  750
  
  $
  1,850
  On February 25, 2000, the Company entered into an
agreement to exchange shares of its common stock or cash, or a combination of
the two, with an aggregate value of $5.0 million for 1,040,993 shares of the
common stock of Evergreen Internet, Inc. (Evergreen), a developer of
software.  On March 14, 2000, the
Company issued 216,931 shares of its common stock with a value of $2.8 million
to Evergreen as partial payment.  On
August 1, 2000, the Company paid $2.2 million in cash to Evergreen. Based upon
a comprehensive review of its investments and long-lived assets during the
third quarter of fiscal 2001, the Company recorded a noncash charge of
$3,650,000 to write-down the carrying amount of  Evergreen.  During the
third quarter of fiscal 2002, the Company re-evaluated its investments and
long-lived assets and recorded an additional noncash charge of $1,100,000 to
write-down the carrying amount of Evergreen to its estimated realizable value
of $250,000.  5.     Long-term Debt  On December 11, 2001 the Company entered into a long-term debt
agreement with New Atlanta Communications, LLC (New Atlanta) to pay $500,000
in liabilities that had accrued as the result of the rescission agreement
between the Company and New Atlanta. 
The debt bears no interest and is to be paid in 25 equal monthly
installments of $20,000 through February 2004.  6.     Earnings Per
Share  SFAS No. 128, Earnings Per Share, requires a dual
presentation of basic and diluted income (loss) per share (EPS). Basic EPS
excludes dilution and is computed by dividing net income (loss) attributable to
common stockholders by the weighted average of common shares outstanding for
the period.  Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (e.g., convertible preferred stock, warrants, and common stock
options) were exercised or converted into common stock.  Potential common shares in the diluted EPS
computation are excluded for fiscal year 2001 as their effect would be antidilutive.  The following is a reconciliation of the
numerators and denominators of the basic and diluted income (loss) per share
computations for the periods indicated (in thousands, except per share
amounts):  7 
    Three
  Months Ended
  
  Nine
  Months EndedJanuary 31,
  
  January 31,2002
  
  2001
  
  2002
  
  2001Net Income (Loss)  (Numerator):Net income
  (loss), basic and diluted
  
  $
  696
  
  $
  (4,054
  )
  $
  776
  
  $
  (12,278
  )Shares  (Denominator):Weighted average
  shares of common
  stock outstanding, basic
  
  20,218
  
  19,020
  
  19,684
  
  18,946Weighted average
  common equivalent
  shares outstanding
  
  415
  
  
  
  422
  
  Weighted average
  shares of common
  stock outstanding, diluted
  
  20,633
  
  19,020
  
  20,106
  
  18,946Per Share Amount:Net income
  (loss) per share, basic
  
  $
  0.03
  
  $
  (0.21
  )
  $
  0.04
  
  $
  (0.65
  )Reduction in net
  income per share due to
  Weighted average common equivalent Shares
  
  
  
  
  
  
  
  Net income
  (loss) per share, diluted
  
  $
  0.03
  
  $
  (0.21
  )
  $
  0.04
  
  $
  (0.65
  )Antidilutive Shares:
  
  
  
  941
  
  
  
  941  7.     Comprehensive Income (Loss)  The Companys total comprehensive income (loss) for the periods shown
was as follows (in thousands):  Three
  Months Ended
  
  Nine
  Months EndedJanuary 31,
  
  January 31,2002
  
  2001
  
  2002
  
  2001Net income (loss)
  
  $
  696
  
  $
  (4,054
  )
  $
  776
  
  $
  (12,278
  )Foreign currency
  translation gain
  
  31
  
  145
  
  126
  
  129Unrealized
  holding gain
  arising during period
  
  
  
  
  
  
  
  39Total comprehensive income (loss)
  
  $
  727
  
  $
  (3,909
  )
  $
  902
  
  $
  (12,110
  )  8.     Special Charges  In July 2000, the Company announced that certain matters had come to
the attention of the Companys Board of Directors that indicated that the
Company had engaged in improper accounting practices. Accordingly, the Board of
Directors authorized its Audit Committee to conduct an investigation of the
Companys accounting and financial reporting practices and to recommend
remedial action, if any.  As a result of
this investigation, the Company incurred additional costs during fiscal 2001
related to the investigation itself, legal expenses and additional auditing
costs of $140,000 for the three month period ended January 31, 2001, $2,678,000
for the nine month period ended January 31, 2001 and $3,356,000 for the year
ended April 30, 2001. As a result of its settlement of the class action and
derivative lawsuits pertaining to the matters being investigated, the Company
recorded net recoveries of special charges of $1,376,000 and $1,315,000 during
the three and nine month periods ended January 31, 2002, related to previously
accrued legal, accounting investigation and estimated settlement costs.  8 
   Item 2.   Managements Discussion and Analysis of Financial Condition and
Results of Operations  The discussion in this Quarterly
Report on Form 10-Q contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on current expectations,
estimates and projections about the software industry and certain assumptions
made by the Companys management. Words such as anticipates, expects,
intends, plans, believes, seeks, estimates, variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed
or forecasted in any such forward-looking statements. Such risks and
uncertainties include, but are not limited to, those set forth herein under
Volatility of Stock Price and General Risk Factors Affecting Quarterly
Results and in the Companys Annual Report on Form 10-K under Business  Risk
Factors. Unless required by law, the Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. However, readers should carefully
review the risk factors set forth in other reports or documents the Company
files from time to time with the SEC, particularly the Companys Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.  The following discussion
should be read in conjunction with the unaudited Condensed Consolidated
Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly
Report on Form 10-Q and with the audited Consolidated Financial Statements and
Notes thereto, together with Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included in the Companys Annual
Report on Form 10-K for the fiscal year ended April 30, 2001 as filed with the
SEC.  Overview  Unify provides business application platform
solutions to companies worldwide seeking to develop, deploy and maintain Web,
graphical, client/server and character-based applications. The Companys
products include a relational database management system and application
development systems for Web, host-based and client/server application
development. Additionally, Unify provides support, training and consulting to
help customers design, develop and deliver critical application development
projects.  Unifys customers consist primarily of independent software vendors
(ISVs), value added resellers (VARs), corporate information technology
(IT) departments, solutions integrators (SIs) and distributors.  The Company sells its products to these
markets through direct sales organizations in the United States, United
Kingdom, France and Japan, and indirectly to end-users through its worldwide
network of distributors and VARs. The Company recognizes software license
revenue when a noncancelable license agreement has been executed, delivery has
occurred, fees are fixed and determinable, and collection of the resulting
receivables is deemed probable by management. 
Services revenue includes support revenue, which is recognized ratably
over the support period (generally a one-year term), and revenue from
consulting and training services, which is recognized as services are performed.  Fees for support (which consists primarily
of technical support and software updates) are billed in advance and included
in deferred revenue until recognized.  Audit Committee Investigation  In July 2000, the Company announced that certain
matters had come to the attention of the Companys Board of Directors that
indicated that the Company had engaged in improper  9 
   accounting practices during fiscal 2000. Accordingly, the Board of
Directors authorized its Audit Committee to conduct an investigation of the
Companys accounting and financial reporting practices and to recommend
remedial action, if any.  In July 2000,
in connection with the ongoing investigation, the Company placed its former
chief executive officer and its former chief financial officer on
administrative leave, and in November 2000, the Company terminated its former
chief executive officer and its former chief financial officer resigned.  As a result of this financial reporting investigation,
the Company incurred significant costs during fiscal 2001 related to the
investigation itself, legal expenses and additional auditing costs.  In addition, the majority of the U.S. based
sales team resigned or were terminated during the first quarter of fiscal 2001,
which had a significant negative impact on the Companys revenues for fiscal
2001.  Securities Lawsuits  On February 26, 2002, the Company announced
that it has entered into memoranda of understanding to settle the shareholder
and derivative litigation pending against the Company and certain of its
current and former officers and directors in the United States District Court
for the Northern District of California and the Superior Court of the State of
California, County of San Francisco. 
Under the terms of the proposed settlements, all claims against the
Company and all other defendants will be dismissed without admission of
liability or wrongdoing by any party. The settlements are subject to execution
of final settlement documents, notice to shareholder class members and review
and approval by the federal and state courts. The estimated impact on the
Company of the settlement was accrued at the end of fiscal 2001, and therefore,
the settlement will have no negative impact on the Companys earnings or
financial position.  Results of Operations  Revenues  Total revenue for the three months ended January 31, 2002 decreased
$0.2 million (5%) to $3.5 million from $3.7 million for the three months ended
January 31, 2001. Total revenue for the nine months ended January 31, 2002
decreased $0.2 million (2%) to $9.9 million from $10.1 million for the nine
months ended January 31, 2001.  Software license revenues increased $0.3 million (19%) for the three
months ended January 31, 2002 and $0.1 million (2%) for the nine months ended
January 31, 2002, as compared to the same periods in the prior year.  The increase during the three month period
was primarily the result of sales progress in North America. The nine month
period was relatively flat as a result of adverse economic conditions during
the first and second quarters of fiscal 2002.  Total services revenue for the third quarter ended January 31, 2002,
was $1.6 million, a 24% decrease compared to the third quarter services
revenues of $2.1 million of the prior year. 
Total services revenue for the nine months ended January 31, 2002
decreased $0.4 million to $4.8 million from $5.2 million for the nine months
ended January 31, 2001.  The three and
nine month decrease in services revenues was primarily due to nonrecurring
royalty payments received from New Atlanta Communications in fiscal 2001and a
decrease in consulting and training revenues due to reduced IT spending.  Consulting and training revenues for the
three month and nine month periods ended January 31, 2002 were $0.1 million and
$0.4 million respectively, as compared to $0.4 million and $0.6 million for the
three month and nine month periods ended January 31, 2001.  International revenues include all software license and service
revenues from customers located outside the United States. International
revenues from the Companys direct sales organizations in Europe and Japan and
from value added resellers, distributors, and other partners in all
international locations accounted for 62% of total revenues for the three month
and nine month  10 
   periods ended January 31, 2002 respectively, as compared to 69% and 57%
for the three month and nine month periods ended January 31, 2001.  Cost
of Revenues  The Companys cost of revenues consists primarily of cost of software
licenses and cost of services.  Cost of
software licenses consists primarily of product documentation, packaging and
production costs in the U.S. and Japan, and royalties paid for licensed
technology.  Cost of services consists
primarily of employee, facilities and travel costs incurred in providing
customer support under support contracts, and consulting and training
services.  Total cost of revenues as a
percentage of total revenues decreased to 14% for the three month period ended
January 31, 2002 from 22% for the comparative three month period of the prior
year and decreased to 16% for the nine month period ended January 31, 2002 from
30% for the same nine month period of the prior year.  Cost of software licenses as a percentage of software license revenues
were 5% and 8% for the three month and nine month periods ended January 31,
2002, compared to the 10% levels achieved for the three month and nine month
periods ended January 31, 2001.  Total cost of services decreased 43% to $0.4 million in the third
quarter of fiscal 2002 from $0.7 million for the third quarter of fiscal
2001.  For the nine month period ended
January 31, 2002, cost of services decreased 54% to $1.2 million from $2.6
million in the same nine month period of the prior year.  The decrease in fiscal 2002 reflects the
cost reduction measures that were initiated at the end of the second quarter of
fiscal 2001 and the reduction in the use of contract labor.  Notwithstanding the foregoing, the cost of
services generally has a high component of fixed costs and therefore does not
fluctuate as readily with changes in revenues.  Product
Development  Product development expenses consist primarily of employee and
facilities costs incurred in the development and testing of new products and in
the porting of new and existing products to additional hardware platforms and
operating systems.  For the three month
period ended January 31, 2002, product development expenses remained flat at
$0.9 when compared to the same three month period of the prior year.  For the nine month period ended January 31,
2002, product development expenses decreased 27% to $3.0 million from $4.1
million for the same nine month period of the prior year.  The decrease was primarily the result of a reduction
in the workforce in late October 2000. 
Product development costs as a percentage of total revenues during the
three month and nine month periods ended January 31, 2002 were 26% and 31%,
respectively, as compared to 23% and 40% for the three month and nine month
periods ended January 31, 2001.  The
Company believes that investments in product development are critical to
maintaining technological leadership and therefore intends to continue to
devote significant resources to product development.  Selling,
General and Administrative  Selling, general and administrative (SG&A) expenses for the
quarter ended January 31, 2002 decreased to $1.6 million, or 46% of total
revenues, as compared to $2.3 million, or 61% of total revenues for the same
quarter of the prior year. SG&A expenses for the nine months ended January
31, 2002 decreased to $4.5 million, or 46% of total revenues, as compared to
$8.7 million, or 85% of total revenues, for the same period of the prior year.  The major components of SG&A for the
nine months ended January 31, 2002 were sales expenses of $2.9 million,
marketing expenses of $0.4 million, general and administrative of $1.7 million,
and bad debt recovery of $0.3 million.  11 
   For the three month period ended January 31, 2002, sales expenses,
salaries and commissions decreased $0.1 million when compared to the same
quarter of the prior year, as a result of the continued improvements in the
Companys worldwide sales model.  During
the first quarter of fiscal 2002, the Company transitioned key customers and
regions in Europe to a direct sales model. 
Further adjustments were made to the sales model during the first part
of fiscal 2002 resulting in additional cost savings.  Marketing expenses also decreased by $0.2 million during the same
three month period.  General and
administrative expenses decreased by $0.2 million for the third quarter of
fiscal 2002, compared to the comparable period for the prior year, primarily as
a result of the cost reduction measures implemented at the end of the second
quarter of fiscal 2001 and the first quarter of fiscal 2002, and as a result of
the normal quarter-to-quarter fluctuations that occurs throughout the Companys
operating year.  As a result of managements
continuing evaluation, the performance and quality of its outstanding
receivables has improved. Bad debt expense was less than $0.1 million for both
the three months ended January 31, 2002 and the comparable period of the prior
year.  For the nine months ended
January 31, 2002, sales expenses, salaries and commissions decreased by $1.5
million compared to the nine months ended January 31, 2001 as the result of
result of the cost reduction measures taken in the second quarter of fiscal
2001 and the restructuring of the Companys worldwide sales model.  Marketing expense also decreased by $0.9
million period to period.  General and
administrative expenses decreased by $0.8 million during the first nine months
of fiscal 2002 compared to the first nine months of fiscal 2001 primarily as a
result of reduced spending, cost reduction measures implemented in the second
quarter of fiscal 2001 and the first quarter of fiscal 2002 and normal
quarter-to-quarter fluctuations that occur throughout the Companys operating
year.  As a result of managements
continuing evaluation of its outstanding receivables and management of its
delinquent portfolio, the Company had a net recovery of bad debt expense of
$0.3 million during the nine month period ended January 31, 2002, compared to
$0.7 million during the nine month period ended January 31, 2001.  The Company expects that total SG&A
expenses may fluctuate from quarter to quarter primarily because of variability
in marketing program spending and sales commission expense.  Write-down of Other Investments  During the third quarter
of fiscal 2001, the Company completed a comprehensive review of its other
investments and recorded a non-cash charge of $3,650,000 to write-down the
carrying amount of its investment in Evergreen Internet, Inc, to its estimated
realizable value.  During the third
quarter of fiscal 2002, the Company re-evaluated its position in Evergreen
Internet and in light of the continued weakness in the e-commerce market, and
discussions with valuation experts, the Company recorded an additional non-cash
charge of $1,100,000 to further write down the carrying amount of the
investment to an estimated realizable value of $250,000.  Special
Charges  In July 2000, Company
announced that certain matters had come to the attention of the Companys Board
of Directors that indicated that the Company had engaged in improper accounting
practices during fiscal 2000. Accordingly, the Board of Directors authorized
its Audit Committee to conduct an investigation of the Companys accounting and
financial reporting practices and to recommend remedial action, if any.  As a result of this investigation, the
Company incurred additional costs related to the investigation itself, legal
expenses and additional auditing costs for the three and nine month period
ended January 31, 2001 of $140,000 and $2,678,000 respectively.  As a result of its settlement of the class
action and derivative lawsuits pertaining to the matters being investigated, the
Company recorded net recoveries of special charges of $1,376,000 and $1,315,000
during the three and nine month periods ended January 31, 2002, related to
previously accrued legal, accounting investigation and estimated settlement
costs.  12 
   Provision
for Income Taxes  The Company recorded tax provisions for the three and nine month
periods ended January 31, 2002 and 2001 related primarily to foreign income
taxes and withholding taxes on software license royalties paid to the Company
by certain foreign licensees. For the same periods, the Company recorded no
significant federal or state income tax provisions as the Company had
substantial net operating loss carryforwards.  Liquidity
and Capital Resources  At January 31, 2002, the Company had cash, cash equivalents, restricted
cash and investments of $2.8 million, compared to $3.2 million at April 30,
2001.  The Companys working capital
deficit was reduced to $1.2 million at January 31, 2002 from $3.9 million at
April 30, 2001.  As shown in the accompanying condensed consolidated financial
statements for the nine month period ended January 31, 2002, the Company
recorded net income of $776,000 and had an accumulated deficit of $58,658,000.
The Companys cash equivalents decreased for the nine month period ended
January 31, 2002 by $192,000 and the Companys working capital was a negative
$1,209,000.  For the year ended April
30, 2001, the Company incurred a net loss of $12,331,000, and had an
accumulated deficit of $59,434,000 and working capital deficit of $3,929,000 as
of April 31, 2001.  During fiscal 2001, the Company experienced a decline in revenues and
incurred significant special charges as a result of the Audit Committees
investigation.  The Company is focused
on growing revenues and anticipates that it will continue to have some success
in that regard during fiscal 2002. 
However, the Company may continue to incur significant expenses in
defense of the shareholder litigation if the final settlement is not approved
by the Court as proposed, or at all.  As
a result of these factors,  the Company
may potentially be unable to continue as a going concern.  The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.  The Companys continuation as a going
concern is dependent upon its ability to continue to generate sufficient cash
flows to meet its obligations on a timely basis, the ability to continue to
work with key vendors to accept payment terms for certain payables, to obtain
additional financing or refinancing as may be required, and ultimately to
return to profitability and significant positive cash flows.  Management restructured the Company and significantly reduced operating
expenses during fiscal 2001.  Management
plans to grow revenues, increase the investment in marketing, while
aggressively controlling costs, and seek additional financing if available upon
terms that are acceptable to the Company. 
There is no assurance that managements plans will be successful or if
successful, that they will result in the Company continuing as a going concern.The Companys ability to obtain
equity financing on acceptable terms may be adversely affected by the delisting
of the Companys Common Stock from the Nasdaq National Market during fiscal
2001. If adequate funds are not available to satisfy the Companys short-term
or long-term capital requirements, the Company may be required to significantly
reduce its operations.  Additionally,
the sale of additional equity or other securities will result in dilution of
the Companys stockholders.  The Companys operations resulted in a decrease in cash of $0.2 million
during the nine months ended January 31, 2002, as compared to a decrease of
$5.3 million for the same period in the prior year.  Net cash used in operating activities of $0.5 million for the
first nine months of fiscal 2002 was primarily due to decreases in accounts
payable of $1.2 million, a decrease in other  13 
   accrued liabilities of $0.9 million, a decrease in accrued compensation
and related expenses of $0.2 and an increase in accounts receivable, net, of
$0.7 million, offset by depreciation expenses of $0.3 million, the write down
of other investments of $1.1 million, a decrease in prepaid expenses and other
current assets of $0.3 million and net income of $0.8 million.  Investing activities during the period
provided cash of $0.3 million, consisting of the maturities/sales of
available-for-sale securities of $0.1 million and decreases in restricted cash
of and other assets of $0.2 million. 
Cash used in financing activities during the period was $0.1 million,
which represented proceeds from the issuance of common stock under the
Companys stock option and stock purchase plans of $0.1 million offset by the
reduction in the note payable to minority interest stockholders of $0.2
million.  Noncash investing and financing activities of $500,000 was the result
of the Company converting an obligation, in other liabilities, to a
non-interest-bearing note which is reflected in the balance sheet as short-term
and long-term debt of $240,000 and $260,000 respectively.  During fiscal 2001, the Company announced
the rescission of the New Atlanta Communications acquisition and recorded a
current obligation to pay New Atlanta $500,000 for net revenues received that
occurred between the time New Atlanta was acquired by Unify and the time the
acquisition was rescinded.  Volatility
of Stock Price and General Risk Factors Affecting Quarterly Results  The Companys common stock price has been and is likely to continue to
be subject to significant volatility.  A
variety of factors could cause the price of the Companys common stock to
fluctuate, perhaps substantially, including: announcements of developments
related to the Companys business; fluctuations in the Companys or its
competitors operating results and order levels; general conditions in the
software and computer industry or the worldwide economy; announcements of
technological innovations; new products or product enhancements by the Company
or its competitors; changes in financial estimates by securities analysts;
developments in patent, copyright or other intellectual property rights; and
developments in the Companys relationships with its customers, distributors
and suppliers; legal proceedings brought against the Company or its officers;
and significant changes in the Companys senior management team.  In addition, in recent years the stock
market in general, and the market for shares of equity securities of many high
technology companies in particular, has experienced extreme price fluctuations
which have often been unrelated to the operating performance of those
companies. Such fluctuations may adversely affect the market price of the
Companys common stock.  The Companys quarterly operating results have varied significantly in
the past, and the Company expects that its operating results are likely to vary
significantly from time to time in the future. Such variations result from,
among other factors, the following: the size and timing of significant orders
and their fulfillment; demand for the Companys products; the number, timing
and significance of product enhancements and new product announcements by the
Company and its competitors; ability of the Company to attract and retain key
employees; seasonality; changes in pricing policies by the Company or its
competitors; realignments of the Companys organizational structure; changes in
the level of the Companys operating expenses; changes in the Companys sales
incentive plans; budgeting cycles of the Companys customers; customer order
deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems currency fluctuations; and general domestic and
international economic and political conditions.  Due to the foregoing factors, quarterly revenues and operating results
are difficult to forecast. Revenues are also difficult to forecast because the
market for Java development and business application development software is
rapidly evolving and has been subject to significant volatility during the past
two years, and the Companys sales cycle, from initial evaluation to purchase
and the provision of maintenance services, is lengthy and varies substantially
from customer to customer. Because the Company normally ships products within a
short time after it receives an  14 
   order, it typically does not have any material backlog. As a result, to
achieve its quarterly revenue objectives, the Company is dependent upon
obtaining orders in any given quarter for shipment in that quarter.
Furthermore, because many customers place orders toward the end of a fiscal
quarter, the Company generally recognizes a substantial portion of its revenues
at the end of a quarter. As the Companys expense levels are based in
significant part on the Companys expectations as to future revenues and are
therefore relatively fixed in the short term, if revenue levels fall below
expectations operating results are likely to be disproportionately adversely
affected.  The Company also expects that
its operating results will be affected by seasonal trends, and also anticipates
that it may experience relatively weaker demand in fiscal quarters ending July
31 and October 31 as a result of reduced business activity in Europe during the
summer months.  Doubts about the ability of the Company to continue as a going concern
as discussed in Note 2 to the condensed consolidated financial statements and
above in this Item 2 may have an adverse effect on the Companys future sales
and its ability to attract and retain qualified personnel. The Companys
products are typically used to develop applications that are critical to a
customers business.  Customers may be
unwilling to build their business applications around the Companys products
because of concerns about the Companys ability to continue supporting its
products.  Item
3. Disclosures about Market Risk  Interest
Rate Risk.  The Company is exposed to market risk
relating to changes in interest rates that may affect returns on its investment
portfolio, which consists of cash equivalents and investments. Cash equivalents
are highly liquid investments with original maturities of three months or less
and are stated at cost.  Cash equivalents
are generally maintained in money market accounts whose objective is
preservation of principal and which hold investments with maturity dates of
less than 90 days. The Company does not believe its exposure to interest rate
risk is material for these balances, which totaled $2.8 million at January 31,
2002. The securities in the Companys investment portfolio are generally
classified as available-for-sale and, consequently, are recorded on the
consolidated balance sheet at fair value with unrealized gains or losses
reported as a separate component of stockholders equity.  The Company does not use derivative
financial instruments in its short-term investment portfolio, places its
investments with high quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. The Company attempts to ensure the safety of
its invested funds by limiting default. 
The Company had no investments at January 31, 2002.  If market interest rates were to change
immediately and uniformly by 10% from levels at January 31, 2002, the fair
value of the Companys cash equivalents and investments would not change by a
significant amount.  Foreign
Currency Exchange Rate Risk.  Because a
large portion of the Companys revenues arise from international sales, the
Company faces exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could
have a material adverse impact on the Companys business, operating results and
financial position. Historically, the Companys primary exposures have related
to revenues and expenses denominated in local currency in Europe, Japan and
Australia. Due to the substantial volatility of currency exchange rates, among
other factors, the Company cannot predict the effect of exchange rate
fluctuations on its future operating results. 
The Company also has currency exchange rate exposures on intercompany
accounts receivable resulting from local currency sales of software licenses by
the Companys international subsidiaries in the United Kingdom, France and
Japan. At January 31, 2002, the Company had $0.1 million, $0.2 million and $0.3
million in such receivables denominated in British pounds, euro and Japanese
yen, respectively. The Company encourages prompt payment of these intercompany
balances in order to minimize its exposure to currency fluctuations, but it
engages in no hedging activities to reduce the risk of such fluctuations. A
hypothetical 10% percent change in foreign currency rates would not have a
significant impact on the Companys business, operating results or financial
position. The Company has not experienced material exchange losses on these
balances in the past; however,  15 
   due to the substantial volatility of currency exchange rates, among
other factors, it cannot predict the effect of exchange rate fluctuations on
its future business, operating results and financial position.  PART II.                OTHER INFORMATION  Item 1.  Legal
Proceedings  Beginning on July 31, 2000 and through October 2000, a series of class
action complaints were filed in the U.S. District Court for the Northern
District of California, against Unify and certain of its directors and former
officers.  The plaintiffs in each of these
actions claim to be suing on behalf of a class of persons who purchased the
Companys common stock during periods specified in the complaint.  These
actions have been consolidated and the court has selected lead plaintiffs
counsel.  From August through October 2000, five shareholder derivative actions
were filed; four in the Superior Court of the State of California and one in
the U.S. District Court for the Northern District of California.  The plaintiffs in these actions each claims
to be suing on behalf of the Company. 
These actions name as defendants certain of the Companys present and
former officers and directors.  The
complaints allege substantially the same conduct, and concern the same time
period, as the shareholder class actions filed in the U.S. District Court for
the Northern District of California. 
The complaints allege that, as a result of this conduct, certain of the
present and former officers and directors breached their fiduciary duties to
the Company and engaged in improper insider trading.  The complaints seek an unspecified amount in damages and
injunctive relief.  In February and April 2001, two alleged
institutional investors filed actions in U.S. District Court for the Northern
District of California against the Company and its former chief executive
officer and former chief financial officer alleging violations of federal
securities laws.  The complaint alleges
the same conduct, and concerns generally the same time period, as that alleged
in the shareholder class actions discussed above.  On February 26, 2002, the Companyannounced that it had reached an
agreement in principle to settle the above class action, individual and
derivative cases.  The settlement is
subject to the execution of a definitive settlement agreement by the parties,
notice to class members and approval by the state and federal courts.  The
estimated costs to settle such lawsuits were accrued as of April 30, 2001.  However, there can be no assurance that the
settlement will be successfully finalized or that it will be approved by the
federal and state courts.  There can
also be no assurance that the settlement will not be challenged or overturned,
which could result in additional litigation costs and liability.  In May 2001, a lawsuit was brought against the Company and certain of
its present and former officers and directors by an insurance carrier which
issued Unify a directors and officers liability and reimbursement excess
policy.  The action, which is presently
pending in the United States District Court for the Northern District of
California, seeks reformation and recission of that insurance policy. The
Company intends to vigorously defend the action.  Additionally, the Company has become aware that the SEC and the Department
of Justice are conducting investigations into the facts and circumstances
surrounding the Companys restatement of its quarterly financial statements and
other matters. The Company is fully cooperating with these investigations.  16 
   Item 6.  Exhibits and Reports on Form 8-K.  (a)           Exhibits.  ExhibitNo.
  
  Description10.3
  
  1996 Employee Stock Purchase Plan, as amended to
  date10.9
  
  2001 Stock Option Plan  (b)           Reports on Form 8-K  No reports on Form
8-K were filed during the quarter ended January 31, 2002.  17 
   UNIFY
CORPORATION SIGNATURE  Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.  Date:  March
  14, 2002
  Unify Corporation(Registrant)By:/s/  DAVID H.
  ADAMSDavid H. AdamsChief Financial Officer(Principal Financial and Accounting Officer)  18